Home prices have been on the rise for some time, slowly but surely eroding the extremely high affordability seen as recently as 2012 and 2013. However, mortgage rates have been a little more up-and-down during that time, meaning that there were some windows of opportunity – including for the bulk of this year – for consumers to still lock in rates that were at least competitive with some of the most affordable ever.
However, when it comes to the windows of opportunity, those that grant access to rates starting with a "3" might now be closing for the foreseeable future. For years, rates were kept down by the Federal Reserve's policies, first Quantitative Easing, and now simply keeping the basis rates for how they lend to banks low. But QE ended more than a year ago, and it's believed that the Fed will vote to raise those basis rates at some point in the next few weeks. Experts differ on what this will mean for the housing market as a whole, but they generally agree on one thing: Rates will rise.
What does that do to affordability?
The fact is that rates could start ticking up into the mid- or even high 4 percent range by the middle of next year, and potentially keep moving right along toward and even past 5 percent by the end of it. Coupling that with rising home prices – the increases of which should slow down, but will nonetheless continue – and it's easy to see why some experts would be concerned about the impact the double-whammy to affordability would have on the market as a whole.
However, many also say that as the economy keeps improving, that will bring more people who have dreams of homeownership back into the fold, and that those people likely won't be deterred by rising costs because they value buying more than they worry about ongoing costs. Moreover, some data suggests that rents should continue to rise as well, giving consumers further financial incentive to get into the housing market.
So what's next?
The only potential issue some experts may see here is that consumers seem to have grown at least a little spoiled by the extreme affordability of the last several years. For example, even when rates rise above the mid-3 percent range, which happens quite often, there is usually a decent-sized drop in mortgage activity. Therefore, people who have come up only seeing affordability through the lens of "If it's not 3.5 percent it's outrageous," may be disappointed by continuing developments. They should, however, keep in mind that even 5 percent is actually pretty affordable in comparison with historical norms, and once the 3 percent rates go away, they will likely do so for good.
For this reason, those who are concerned with declining affordability may simply want to get into the market as soon as possible, to lock in the best deal they will likely have available to them any time soon.
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